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Why building credit as a freelancer is so hard

While the perk of being a creative freelancer is, well, the creativity, the downside is certainly the financial planning. Chasing up payments and keeping your cash flow in check is just one of many survival skills you have to learn to make ends meet. 

Paying rent and chasing invoices is only the tip of the iceberg. Think about building credit as a freelancer – the irregular payments mean that an algorithm somewhere, or an executive at an insurance underwriters, decides that the irregularity of our earnings only affords us the most basic credit score and prevents us from doing things that salaried employees take for granted. If we want to borrow money, rent an apartment, or maybe one day buy a house, we don’t just have to earn the right amount of money. We have to earn it in the right way, too. Many freelancer friends of mine were told by mortgage brokers that there was no way I’d qualify for the loan I wanted. 

Back in the day, I could sort of comprehend why this was the case but today there are roughly 4.29 million self-employed workers in the UK making their living without a regular salary or benefits package. This means close to 15% of the workforce aren’t taking home their earnings in a steady monthly stream. So why are they penalised for this? 

The short answer is that lenders are slow to catch up with any developments in working habits. For years, they have offered mortgages based on certain criteria that naturally skew towards people who earn a salary. Adjusting those criteria to account for people who fall outside of them takes time and effort and potentially exposes them to risk—although, given the current cost of living crisis, risk is just part of the equation if you’re lending money.

In the wake of the pandemic, this failure to acknowledge the reality of freelance incomes is even harder to swallow. When the UK government announced its coronavirus income relief fund, the self-employed were largely overlooked by the measures. The Self-Employment Income Support Scheme (SEISS) paid out funds to at least 2.7 million people, but left 1.6 million self-employed people without any support. That we’re still being treated as outliers rather than a large part of the taxpaying public is a little offensive.

Many freelancers are trying to provide a solution to this issue in the form of creating monthly income. Even if it’s something smaller like £500-1000 a month writing for newsletters that pay a consistent salary or working part time on an employed basis. 

Accessing credit isn’t just important if you want to rent or buy property. Your credit score can affect your ability to secure any kind of personal or business loan. In the creator economy, that can mean the difference between being able to grow your business into something profitable and not being able to get it off the ground at all.

Other back-up plans such as influencer and social media marketing finances don’t even provide a solution as pay is also scattered. Even programs like the TikTok Creator Fund reward creators based on engagement numbers. “Performance on TikTok is dynamic—it changes naturally—so your funds will ebb and flow in the same way,” the platform says in such a matter-of-fact way that it’s easy to miss the fact they’re essentially saying, “We pay whatever we like, whenever we want.”

​​This isn’t just happening on TikTok. Throughout the network of the creator economy, creators are being financially rewarded for the consistency of their engagement, and products are springing up to service the needs of this very particular type of online earner. While regular banks are slow to realise the potential of this new generation of freelancers (they still don’t understand the old one), products are emerging to meet their needs.

Finally, there are those creators at the vanguard of technology and finance who are only earning in cryptocurrency and are no longer bound to the realms of traditional monetary systems. What of them? Well, you’ll need to check out our Web3 newsletter to find out more about these antics. While promising, it’s a slow growing field. 

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